It’s always safe to get an average price. If you’re concerned that you’ll buy IBM at $50 today and it will drop to $45 by the end of tomorrow, then you could just wait. Most likely, you’re not sure that it will drop. If the employment report comes out favorably and the economy looks strong, then IBM could even jump to $60 by the end of today.
If you don’t know what might happen in the next two days but you have a strong opinion that IBM will be going up, then average into the position. To get an average price, you buy equal amounts over equal time intervals. If you plan to buy 200 shares, then you buy 50 this morning, 50 this afternoon, 50 tomorrow morning, and the last 50 at tomorrow’s close. You now have a reasonable approximation of an average price.
When you’re trying to get an average price, breaking up your order into small pieces and feeding it into the market is the simplest way. You don’t need to do it one share at a time. If you separated your 200-share order into eight parts of 25, you would get very close to the average.
If you don’t know what might happen in the next two days but you have a strong opinion that IBM will be going up, then average into the position. To get an average price, you buy equal amounts over equal time intervals. If you plan to buy 200 shares, then you buy 50 this morning, 50 this afternoon, 50 tomorrow morning, and the last 50 at tomorrow’s close. You now have a reasonable approximation of an average price.
When you’re trying to get an average price, breaking up your order into small pieces and feeding it into the market is the simplest way. You don’t need to do it one share at a time. If you separated your 200-share order into eight parts of 25, you would get very close to the average.
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